Savers may not see improvements in interest rates in 2013, but there is one improvement we will likely see. That is fewer bank failures. Bank failures are trending down. The year 2012 ended with 51 bank closures. That's a big decline in the number that failed in 2011 when 92 banks failed. It's the second straight year of declining bank failures. It's a sign that economic normalcy is returning which will eventually lead to higher deposit rates. The summary below shows the number of bank closures per year since 2005. It's hard to believe that bank failures were so rare between 2005 and 2007.
- 2005: 0
- 2006: 0
- 2007: 3
- 2008: 25
- 2009: 140
- 2010: 157
- 2011: 92
- 2012: 51
Most of 2012 bank failures were little-known community banks. Unlike last year, there were no internet banks that failed. However, there were two failed banks that accepted deposits nationwide and had online applications. They also had some good deposit deals before their closure. So many readers may have been customers.
The first of these two banks was Tennessee Commerce Bank which failed in January. The FDIC arranged for all deposits to be assumed by Republic Bank & Trust Company so no depositors lost any money. However, CD customers lost their high CD rates (see post).
The second of these banks was NOVA Bank in Pennsylvania which failed in October. For this failure, the FDIC wasn't able to find a buyer. So the FDIC mailed checks to depositors. Those who had deposits over the FDIC limits might have lost those uninsured deposits.
Large Banks That Failed
One trend that started in 2010 and continued in 2012 is that fewer large banks are failing. In 2012 there was only one bank with assets over $1 billion that failed. That was Tennessee Commerce Bank which had total assets at the time of closure of $1.185 billion. Last year there were seven failed banks with assets over $1 billion, and in 2010 there were 23. In 2009 there were seven failed banks that had over $5 billion in assets with the largest being Colonial Bank with $25 billion. The largest bank that failed was in 2008 when WaMu was closed. It had $307 billion in assets. WaMu still holds the record for the largest U.S. bank to fail.
Most of the failed banks in 2012 were small banks with assets between $100 million and $1 billion. There were 15 with assets under $100 million. The smallest had only $19.6 million in assets.
The small size of most of the 2012 bank failures helped keep down the cost to the FDIC Deposit Insurance Fund (DIF). The FDIC reported a DIF balance of $25.2 billion at the end of Q3 in 2012. This is up considerably from last year when the DIF balance was $7.8 billion. The FDIC reported a DIF balance of negative $7.4 billion at the end of 2010. At the end of 2008 when it was clear that many banks had to be closed, the FDIC increased the premiums it charged banks for deposit insurance. With the number and size of failed banks going down, this should lead to lower premiums which will make it a little easier for banks to offer higher deposit rates.
States with the Most Failures
With 10 bank failures, Georgia had more bank failures in 2012 than any other state. Georgia also had the top spot last year. Florida and Illinois were tied for second. Both had 8 bank failures. Since the start of the financial crisis in 2008, there have been 84 bank failures in Georgia and 66 in Florida.
Below is a graph showing the number of banks that failed in each state during 2012:
|#||State||Number of 2012 bank failures|
Failed Banks That Weren't Acquired by Other Banks
Just like in previous years, the FDIC was able to find buyers for the vast majority of banks that failed. In those cases, the acquiring banks assumed all regular deposits including amounts over the FDIC limit. So for most people who had deposits over the FDIC limit at these failed banks, they were lucky. No uninsured deposits were lost. The only exception was brokered deposits. It was common that the acquiring banks did not assume some brokered deposits. The banks probably didn't see any benefit from assuming these types of deposits since there are no relationships with the depositors.
Out of the 51 failures, I counted only four banks that were not acquired. In 2011 there were two banks that were not acquired. Below is the list of these four banks:
- Home Savings of America, Little Falls, MN - 4 branches, $434.1 million in assets and $432.2 million in deposits (closed on Feb 24)
- New City Bank, Chicago, IL - 1 branch, $71.2 million in assets and $72.4 million in deposits (closed on Mar 9)
- Bank of the Eastern Shore, Cambridge, MD - 2 branches, $166.7 million in assets and $154.5 million in deposits (closed on Apr 27)
- NOVA Bank, Berwyn, PA - 13 branches, $483.0 million in assets and $432.2 million in deposits (closed on Oct 26)
The Loss of High CD Rates When Your Bank Fails
The main issue for depositors when banks fail is the loss of the high interest rate on their existing CDs. By law the acquiring banks are allowed to lower the interest rates on existing CDs. Many of the acquiring banks in 2012 did make use of this allowance. The depositors are free to close the CDs without a penalty, but in today's interest rate environment, it's impossible to replace those CDs with new ones with the same high rates.
Most of the acquiring banks didn't publicly announced their policy on the existing CDs from the failed banks. For most of the bank failures in 2012, the FDIC just provided the following about interest rates:
Interest on deposits accrued through close of business the day the bank was closed will be paid at your same rate. Current rates will be reviewed by the new bank and may be lowered; however, you may withdraw funds from any transferred account without early withdrawal penalty until you enter into a new deposit agreement.
I found only two banks in 2012 that stated on their websites at the time of the acquisition of the failed banks that they were keeping the CD rates in effect until maturity. One of these two was US Bank N.A. when it acquired BankEast, Knoxville, TN in January. The other one was Huntington National Bank when it acquired Fidelity Bank, Dearborn, MI in March.
More banks may have decided to keep rates unchanged, but these banks may have communicated this privately to customers. Not all customers may have been given this opportunity. For example, Old Plank Trail Community Bank, N.A. of Illinois posted the following on its website about its acquisition of First United Bank, Crete, IL:
Will my personal Certificates of Deposit (CDs) change? Will the rates change prior to maturity?
For local personal and IRA CDs, the simple answer is NO. These CDs will remain the same until maturity and automatically renew at the Old Plank Trail Community Bank, N.A. posted rates in effect at maturity. Some CDs, such as “Internet CDs,” may be adjusted. Unless you’re notified, rates will stay the same.
There was a similar case in 2011 of a bank treating internet CDs differently than local CDs.
Credit Union Liquidations
The credit unions didn't get hit nearly as bad as the banks. There were only 15 credit unions that were liquidated in 2012. That's just one less than last year, and just like last year one of the credit unions was privately insured by American Share Insurance (ASI). That credit union was USA One National Credit Union in Illinois. It was closed by Illinois regulators, and the ASI was appointed as the liquidating agent. The ASI was able to have another ASI-only credit union, Credit Union 1, to assume all of the liquidated credit union's share account liabilities. So no members lost money. This is only the third ASI-only credit union liquidation since 2009.
The other 14 failed credit unions were federally insured by the NCUA. The last one was just announced by the NCUA on Friday. About half of the credit unions were tiny credit unions with assets under $10 million. Only seven had assets over $10 million. These include:
- Chetco Federal Credit Union, Brookings, OR - $248 million in assets
- G.I.C. Federal Credit Union, Euclid, Ohio - $15.5 million in assets
- A M Community Credit Union, Kenosha, WI - $121.8 million in assets
- Telesis Community Credit Union, Chatsworth, CA - $301.3 million in assets
- USA One National Credit Union, Matteson, IL - $38 million in assets (ASI-insured)
- Saguache County Credit Union, Moffat, CO - $17 million in assets
- Eastern New York Federal Credit Union, Napanoch, NY - $49 million in deposits
For six out of seven of the above credit unions, the NCUA and ASI arranged for other credit unions to assume all of the liquidated credit unions' deposits. For the other one and for many of the tiny credit unions, not all deposits were assumed. Either no credit union was found to assume deposits or only some of the deposits were assumed by another credit union. For these cases, credit union members may have lost uninsured deposits.
One of the most interesting failures was at United Catholic Credit Union (UCCU), Temperance, MI which was liquidated on August 9th. In November, the Michigan Attorney General announced that the credit union's sole employee had been charged with embezzlement for allegedly pocketing approximately $2.1 million from the credit union.
What To Expect for 2013?
I think it's likely that we'll see fewer bank failures in 2013. The number of bank failures has been trending down in 2012. The first quarter had 16 bank failures, and the fourth quarter had only 8 failures. If that trend continues, the number of bank failures may be way under the 2012 total of 51.
In the FDIC's Q3 report, the number of "problem" banks declined from 732 to 694. The FDIC doesn't disclose the banks on this list or the specific criteria it uses to place banks on this list. There are ways that we can make guesses about which banks may be on this list.
There are still 838 banks on Calculated Risk's unofficial problem bank list. This list is based on publicly available enforcement actions that regulators have released or that have been reported by banks' SEC filings. Out of the 51 banks that failed in 2012, the vast majority had been on this list. However, many banks on this list may not fail. Several have been able to correct problems and get the regulator to terminate the enforcement action. Others have arranged to be acquired by other banks without help from the FDIC.
In our bank health ratings page, we have a list of the banks with the worst Texas Ratios. The Texas Ratio is an industry standard for calculating the health of a bank, but is not the only factor to consider. Our data is based on Q3 2012 financial data from the FDIC. A Texas Ratio over 100% is considered at risk.
References to Help Keep Your Deposits Safe:
- FDIC deposit insurance summary
- NCUA deposit insurance summary for credit unions
- Review of private deposit insurance for credit unions
- Verifying Your Internet Bank Deposits are FDIC Insured
- Maximize Your FDIC Coverage with Beneficiaries
- Temporary Unlimited Deposit Insurance Coverage
- Extending Coverage with Private Deposit Insurance
- Review of 2011 Bank Failures